One year after $100, oil prices cut in half

HOUSTON: One year ago on Friday, crude prices eclipsed the once unfathomable price of $100 a barrel for the first time, a day largely lost to history because of the year that followed.

Crude traded close to $45 on Friday as OPEC embarks on its largest production cut ever in an attempt to stem the historic price decline, and yet another economic report suggested the U.S. economy is severely ill and demand for energy will remain weak.

Light, sweet crude for February delivery rose 53 cents to $45.13 a barrel on the New York Mercantile Exchange.

Oil's surge into triple digits for the first time one year ago was the start of a climb that would peak above $147 a barrel by July. Since then, amid fears of a prolonged global recession and crumbling worldwide demand, crude prices have plunged more than 70 percent.

``Thank goodness that's over!'' Raymond James & Associates said in a note to clients Friday, summing up what many traders feel after the most volatile year since crude futures were offered on Nymex in 1983.

The same gloomy economic data that drove prices into the mid-$30s in the final month of the year continued into 2009.

A private group's measure of manufacturing activity fell more than expected in December, hitting the lowest reading in 28 years as new orders and employment continue to decline. The Institute for Supply Management, a trade group of purchasing executives, said Friday its manufacturing index fell to 32.4 in December from 36.2 in November. Wall Street economists surveyed by Thomson Reuters had expected the reading to fall to 35.5.

Any reading above 50 signals growth, while a reading below 50 indicates contraction. The index has fallen steadily for the last five months.

A weakened manufacturing sector suggests demand for energy will not rebound any time soon.

The February contract for crude rose $5.57 on Wednesday, the last trading day of 2008, to settle at $44.60 after Russia threatened to cut off natural gas supplies to Ukraine. Russia followed through with that threat Thursday, though both countries pledged they would keep supplies to the rest of Europe flowing.

As of late Friday afternoon, no interruptions outside Ukraine were reported.

Analyst Olivier Jakob of energy analysis firm Petromatrix in Switzerland said Ukraine has enough reserves to avoid an immediate risk to its supplies, as long as both parties find an agreement by the end of next week.

``If there is a disruption in natural gas supplies to Europe, then you will see an increase in the usage of oil instead of natural gas. It will have an impact on oil prices,'' Jakob said.

The European Union depends on Russia for about a quarter of its gas, with about 80 percent of that delivered through pipelines controlled by Ukraine.

Concerns that the week-old conflict between Israel and Hamas in Gaza could disrupt supplies in the oil-rich Middle East helped keep prices from falling further.

The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global supply, has announced production cuts totaling more than 4 million barrels per day in the last few months. Analysts say crude's direction in the early part of 2009 will be linked largely to whether the cartel adheres to the new quotas.